Consumers, particularly those aged 40 to 59, are taking larger unsecured and payday loans. Picture: Dean Drobot / 123RF
Consumers, particularly those aged 40 to 59, are taking larger unsecured and payday loans. Picture: Dean Drobot / 123RF

Consumers have significantly fewer credit agreements than in previous years yet are becoming overindebted at a faster rate.

This is according to the latest statistics released by the Independent Debt Management (IDM) Group, which comprises debt counselling firms Debt Busters and Consumer Debt Help. 

Benay Sager, the COO of the IDM Group, says statistics from the third quarter of 2018 show that consumers entering debt review had six credit agreements, on average, compared to nine in 2013, “indicating that consumers are becoming overindebted more quickly than in previous years”.

Sager says consumers, particularly those aged 40 to 59, are also taking larger unsecured and payday loans. Their payday loans were 30% larger than those of younger clients and their unsecured loans were 16% higher.

High amounts of debt in the 40 to 59 age bracket are concerning because in this age range your family should be reaching adulthood and you should clear your debts or be close to doing so and able to focus most of your savings on providing for your retirement. The average age of a Debt Busters client is 38 and 67% of their debt is granted by banks.

Sager says big lenders are offering bigger loans over longer terms and loans of R150,000 are not uncommon. He says these loans appear to offer attractive interest rates “in the low 20s” but the amount repaid is more than on a loan with a shorter term.

Unsecured debt makes up almost half of IDM’s debt book. Sager says the average interest rate charged on unsecured loans is 24%. Fewer people are apparently taking out microloans, which attract interest at a rate of 5% a month, as this makes up a tiny portion of the book.

Unsecured debt, such as personal loans and credit card debt, is typically more expensive than secured debt such as a home or vehicle loan and IDM’s statistics seem to indicate that consumers are unable to borrow against homes or are unaware that this may offer a better way to borrow.

“From the middle of 2018, the number of inquiries [from consumers considering debt review] year-on-year has shot up. December was 20% up on the previous year. In December/January, it’s always hard to go six weeks between pay periods, but the queries started even sooner in December 2018, which shows that consumers are looking for cashflow relief,” Sager says.

Didi Sebothoma, the acting manager of education and communication at the National Credit Regulator, says many consumers have started 2019 with no option but to take on credit due to the impact of increases in VAT and petrol last year.

Although you may at times be forced to take on credit, taking loans to pay for what you consume — groceries, petrol, clothes or entertainment — will only compound your financial problems. If you cannot cope on your income, there are only two options — cut your spending or increase your income.

You should ideally aim to only borrow for things that appreciate in value like a home or to study and increase your earnings.

Sebothoma says consumers who need credit must borrow from registered lenders only and should never entrust to a credit provider their bank cards, SASSA cards or identity documents. Consumers should also beware of lenders that ask for upfront payments from consumers before granting a loan or releasing funds to a borrower.

Consumers seeking credit must always ask for a quotation and pre-agreement, outlining the cost of credit for the proposed agreement.